Guaranteed
payments are payments to individual partners for services rendered or for
use of capital, and are not based on the partner’s share of partnership
income. Guaranteed payments to partners are deducted from partnership
income before determining partnership profit or loss. Guaranteed payments
are generally subject to self-employment tax on the recipient’s
individual return.
If the partnership agreement states a
partner is to receive a minimum payment, the guaranteed payment is the
amount by which the minimum payment is more than the partner’s
distributive share of income, before taking into account the minimum
payment.
Guaranteed payments can cause a partnership
loss. The partner(s) that receives the guaranteed payment reports the full
amount as ordinary income. The partner also reports his/her distributive
share of the partnership loss.
